WASHINGTON – The FDIC Board cleared a number of proposals last week to bring its regulations in line with the Federal Deposit Insurance Reform Act and the Conforming Amendments Act, as well as voting to maintain the current assessment rates for banks and thrifts.
Despite an estimate that the reserve ratio has fallen below the designated 1.25% as of the end of the first quarter and will likely continue down to 1.20% by year-end, the board voted last Tuesday to maintain the current assessment structure of 0 to 27 basis points per year based on risk. However, hefty assessments are expected for 2007.
In accordance with the new laws, the FDIC has merged its two funds into the Deposit Insurance Fund as of March 31. The laws also make significant changes to the assessment rate setting provisions that replaces the fixed 1.25% designated reserve ratio with a range of 1.15% to 1.50% of estimated insured deposits and set a target within that range each year.
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Though the agency has not implemented final regulations yet on this change, it is required to do so by Nov. 5, 2006, which is less than the year required to force the FDIC to assess a premium.
"Staff recognizes that, even with flexibility to manage the reserve ratio within a range once the new assessment regulations are in effect, premium rates in 2007 and possibly 2008 would likely have to be higher than they otherwise would need to be if assessment credits were not available or if the board raised rates for the second half of this year," a memo to the board from Division of Research and Insurance Director Arthur Murton read. "The staff believes that the premium increase next year may be substantial absent a significant slowing in insured deposit growth. The burden of the higher premium rates in the next couple of years would fall primarily on newer banks and other banks that have grown rapidly since 1996, i.e., those banks with few or no assessment credits. The higher rates, however, would also accelerate the drawdown of credits industry-wide and shorten the length of time before insured institutions would have to pay their entire premiums in cash."
The FDIC also approved proposed regulations concerning assessment credits for institutions that contributed to build up the funds in the early and mid-1990s, establish a two-year interim rule governing the payment of dividends from the DIF, and operational and procedural changes to the assessment regulations. Comments are due 60 days after publication in the Federal Register.
The FDIC expects to consider additional proposed rules later this year, including the one to set the designated reserve ratio, risk-based assessments for institutions despite the reserve ratio, and the new insurance logo. NCUA is also giving its logo a once over to incorporate changes in deposit insurance coverage amounts.
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